Pakistan has experienced a 74% increase in debt servicing costs during the first five months of the fiscal year 2024.
This rise, observed from July to November, is primarily attributed to the higher policy rates impacting the markup on principal and outstanding loans.
The comparison is made against the same period in the previous fiscal year, FY2023. This fiscal challenge is further compounded by a reduction in the revenue surplus generated by the provinces.
The current fiscal year saw a surplus of Rs107.9 billion in this period, a notable decrease from Rs 202.5 billion in the previous year.
The primary factor driving this trend is the increased current expenditures, mainly due to the heightened mark-up payments resulting from the high policy rates.
Despite these challenges, the government has demonstrated a concerted effort in controlling non-mark-up spending. This is evident in the reported rise in primary surplus during the same period, marking a notable fiscal management strategy.
The State Bank of Pakistan’s (SBP) Monetary Policy Committee is set to convene next week to deliberate on either maintaining or increasing the policy rate.
Any decision to hike the rate is expected to further amplify debt servicing costs, posing additional challenges for the Ministry of Finance.
In a broader fiscal perspective, the total expenditures from July to November in FY2024 grew by 43% to Rs4,831.0 billion, compared to Rs3,367.4 billion in the previous year.
This growth is primarily driven by a 46% increase in current spending, with mark-up payments alone surging by 74%. In contrast, non-mark-up spending saw a modest growth of 20%, reflective of the government’s spending restrictions.
The overall fiscal deficit has been marginally reduced to 1.3% of the Gross Domestic Product (GDP), equating to Rs1,375.4 billion, compared to 1.4% (Rs1,168.6 billion) in the same period last fiscal year.
However, the overall primary balance recorded a surplus of Rs1,542.1 billion, significantly higher than Rs511 billion in the previous year.
This surplus aligns with the government’s agreement with the International Monetary Fund (IMF) to maintain a primary surplus of 0.4% of the GDP.
For FY2024, the fiscal deficit is projected at 6.5% of the GDP. Notably, net revenue receipts have improved by 68% to Rs3,347.7 billion, against Rs1,996.5 billion in the previous year.
This improvement is largely due to a 114% increase in non-tax collection and a 30% rise in tax collection.
The Federal Board of Revenue (FBR) reported a 30.3% increase in tax collection during the period, amassing Rs4,469 billion, which surpasses the assigned target by Rs44 billion.
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